We are told that a generation’s worth of stagnating incomes and rising inequality is the result of inevitable economic forces. High on the list: globalization, immigration, and skill-biased technology. But these conventional scapegoats are not the story.
In reality, America has chosen—deliberately and over decades—to be a low-wage society, through a wide range of self-destructive government policies. Most of these policies were based on an unwarranted faith in laissez-faire economics that didn’t work as promised, except to reward the privileged and further empower the already powerful.
We chased phantom inflation with Federal Reserve policy that was too tight, thus raising the unemployment rate unnecessarily. We rejected sufficient federal stimulus due to unfounded fears of budget deficits, contributing in turn to a tepid economic recovery. Social spending was curtailed for the sake of policymakers’ obsession with the national debt; paranoia about welfare abuse stirred an aversion to anti-poverty programs.
Industrial policy became a source of derision, as we insisted that any government subsidies were inefficient, including policies to retain manufacturing jobs. Free-market ideology led us to deregulate finance, resulting in mindless debt and a focus on short-term profits at the expense of everyday wages. Soon, we had the worst financial crisis since the Great Depression.
We assumed, since mainstream economists told us so, that workers were paid what they were worth, and that unions did little more than to distort the labor market. In fact, without bargaining power, workers were abused and undervalued. Remember Ronald Reagan’s mass firing of air-traffic controllers? That was just the beginning.
A blind belief in free trade devastated the nation’s industrial capacity in community after community across the heartland. Meanwhile, antitrust regulators were shackled from resisting industry concentration. The impact of rising industry concentration, as several recent economic studies have shown, is not only higher prices, but also the suppression of innovation, investment, and wages.
Wages have not only fallen sharply as a percent of GDP, they also no longer keep pace with productivity. While the top 10 percent of earners have seen their paychecks soar since the 1980s, the majority of workers have seen little to no change at all.
At the same time that workers are earning less, they are paying more. The costs of child care, education, housing, and health care—today’s basic needs for working families—have risen faster than the rate of inflation. America was once the birthplace of the middle class. Today, we have the highest share of low-wage workers of any developed country in the OECD.
The good news, though, is that if low wages have been caused by government policy, then they can be reversed by government, as well.
What would such policies look like?
Three pillars are essential to building a high-wage America. First, a full commitment to public investment and industrial policy, focused on reviving manufacturing and rebuilding our nation’s infrastructure. Second, better-funded and higher-quality practical education and training programs. Third, new labor standards and social supports that have been purposefully neglected in recent decades.
These three components of a high-wage society complement one another. Public investment in burgeoning fields such as advanced manufacturing and alternative energy, as well as major infrastructure investment, can provide the impetus for increased productivity and economic growth. This, in turn, can spur high-wage employment throughout the country, including in our deindustrialized heartland.
At the same time, more and better career training can “upskill” people into the new jobs created by such investment, increasing opportunities for all Americans. Finally, greater job and wage supports for service jobs can help guarantee decent living standards, and enable workers to bargain for their compensation on a more level playing field.
Our nation’s labor standards need to be adjusted to a modern world, starting with a higher minimum wage and new protections for workers subject to increasingly erratic incomes and work schedules. Wage theft is rampant in America, and worker protections already on the books must be better enforced. Government subsidies for currently low-paying jobs in caregiving industries such as health care, child care, and social services are imperative, too. A more generous Earned Income Tax Credit and Child Tax Credit may be among the more politically practical courses of action.
A return to high-wage jobs necessitates restoring the ability of workers to agitate and bargain collectively. Getting there will require new state and local policies to support strengthened labor organizing, such as a reimagined Labor Bill of Rights for the 21st century.
Underlying all of this is the need for strong, stimulative fiscal and monetary policies. Regardless of the distribution of income, the American economy is not growing as rapidly as it can. Productivity growth has been slow for years, partly due to inadequate demand for goods and services. This is the heart of Keynesianism, which unfortunately has been rejected by lawmakers and many economists for far too long.
Many argue that wages are as high as they can be in America, or, as President Trump likes to claim, that government has a minimal role to play in the economy—that it must simply cut taxes, get out of the way, and watch jobs abound and incomes rise.
Neither is true. In fact, government’s role is precisely the opposite: to steer us away from the disastrous, decades-long path of low wages that we’ve chosen, and toward a high-wage society, the kind that once led the world in maintaining decent standards of living for its people.